Innovate and win

India is not following the rules. Though it is a developing economy, its service sector has already become much larger than its manufacturing sector, which should happen only in a developed economy.

Therefore, there is pressure to step up the pace of growth of the manufacturing sector to exceed the growth of the service sector which continues to accelerate. To attain higher rates of growth, Indian policymakers must develop the global competitiveness of Indian manufacturing.

At the same time they must ensure that the sector creates vastly more jobs than it has so far. These objectives can be met if the country takes advantage of three paradigm shifts in the global economy. Fortunately, India is well-placed to ride these waves.

The first paradigm shift is in the concept of manufacturing. Until the nineteenth century, manufacturing was a craft carried out by skilled workmen in small workshops. In the twentieth century mass production replaced craftwork and became the new paradigm of manufacturing.

Whitney, Ford, and others applied the power of machines driven by steam and electricity to improve productivity along with the precision of special tools to ensure repeatable quality. With these advances, manufacturing moved into large factories in which workmen became adjuncts to machines.

In the latter part of the twentieth century, Toyota and other Japanese companies improved the mass production paradigm by reinserting the intelligence of people on the shop floor into production processes, thereby becoming the world's most competitive manufacturers.

Rapid developments in IT and telecommunications at the turn of the twentieth century along with new business models are enabling hitherto concentrated manufacturing activities to be deconstructed and dispersed. Activities that are integral to manufacturing performance — such as design, manufacturing engineering, production planning, control and monitoring — that were invariably co-located within factories along with the machines in the twentieth century, can now be performed from remote locations, by other organisations, and even in other countries.

At the same time, digital and communication technologies enable coordination of smaller, dispersed units, which need not be coalesced into a single, large factory. Thus, a third paradigm of manufacturing is emerging in the twenty-first century — the deconstructed, dispersed, networked, manufacturing enterprise. It has the flexibility of combining many capabilities as required, rather than embedding and hard-wiring them into one factory or one organisation.

The Chinese, with lower factor costs and with more determined discipline in their factories, are winning in the second paradigm where they have beaten even the Japanese and Koreans. India, with software skills and deeper domain knowledge in a variety of industries than China has so far, and lower costs than the developed countries that have these skills, seems to have the ingredients for winning in the third, emerging paradigm of manufacturing.